Calculate cost of equity capital if market price is given

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Reference no: EM131488286

Question: 1. (Measuring growth) The Cammack Corporation wants to achieve a steady 7 percent growth rate. If it can achieve a 12 percent return on equity, what percentage of earnings must Cammack retain for investment purposes?

2. (Common stock valuation) The dividend policy of Scorpio Inc. has been recently changed to payout 40 percent of its earnings to shareholders. The company has just paid dividends of $3 per share.

a. Calculate the growth rate of dividends if the return on equity is 12 percent.

b. Calculate the cost of equity capital if the market price of Scorpio Inc's shares is $50.

c. Would you invest in this company if your required rate of return is 18 percent? Why?

Reference no: EM131488286

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